AFT 1093

MACROECONOMICS

FEBRUARI
(SESSION 2019/2020)

“ANALY GROUP ASSIGNMENT SIS OF

CURRENT ECONOMIC CONDITION: UNEMPLOYMENT”

LECTURE’S NAME: NURHAIZA BINTI NORDIN

TUTORIAL GROUP& SUB-GROUP: L3

Group Members Matric No.

ANUWAR RIDZWAN BIN AZIZ A18A0068
NURARFIKA BINTI MOHD ARIS A18A0650
NUR IZATUL AZRIN BINTI NOOR A18A0592
AZMAN
NUR FATIN SHAFIQAH BINTI JAMARI A18A0571
ZAHIRAH’IBRAH BINTI MUJID A18A0961
1.0 BACKGROUND MALAYSIA

Malaysia’s unemployment is relatively low and stable at around three percent which
means the population is experiencing close to full employment. Normally, to find job
vacancies with people looking for jobs will take time. Therefore, they will be unemployed
for a while.The country reached its lowest level of unemployment in 2014, with a rate of
2.85 percent. Meanwhile in 2016 the rate was the higher around 2010 until 2020 with the
rate 3.44 percent. Malaysia’s vibrant economy is considered one of the strongest in
South_East Asia. Together with years of political stability, it has been supporting such a
low unemployment rate and good growth rates each year.
The unemployment rate from 2010 until 2020 show a higher and lower from year to year.
In 2010 the rate is 3.25 percent, 2011 was 3.05 percent show the lowest than 2010 and
2012 show a little bit lower with the different was 1 percent. In 2013 the rate is 3.11
percent, 2014 is 2.88 percent show the lowest rate than the another year. 2015 the rate
show 3.1 percent unemployment in Malaysia and 2016 show the higher number than
another year because of the crisis economic, the rate was 3.44 percent. In 2017 was
3.41 percent, 2018 was 3.36 percent, 2019 was 3.4 percent. In 2020 the rate in February
was 3.30 percent and the number expected increase 3.4 percent because of the covid-
19.
Industry has been a strong contributor to GDP and currently provides around 30 percent
of employment opportunities. But even more - about 50 percent - of GDP is generated
by the services sector. Given the country’s strong and growing economy, average GDP
per capita is growing at increasing rates as well.
However, despite these positive statistics, news reports state that the number of job
seekers and those unemployed – the three percent - are generally young people, both
graduates and non-graduates, who have had trouble entering the job market. Because
of this, the Malaysian government is encouraging companies to open up employment
opportunities specifically to young adults. The favorable economic climate should help.
Yet, there have also been some complaints about underemployment and gender
discrimination within the country.
2.0 ECONOMIC CONDITION FOR THE PAST 10 YEARS IN MALAYSIA

Graph 1 : Unemployment rate in Malaysia

Graph 1 shows the unemployment rate in Malaysia from year 2010 to year 2020. Based
on graph, Malaysia recorded unstable unemployment rate. In 2010, Malaysia recorded
about 3.60% unemployment rate and the unemployment rate decrease to 3.40% in
2011. The difference of unemployment rate between 2010 and 2011 is -0.2%. The
unemployment rate in 2012 is 3.00 %. The unemployment rate has been decreased
slightly from 2011 to 2012. The difference of unemployment rate between 2011 and
2012 is -0.4%.
Based on graph, the unemployment rate in 2013 is 3.30%. The unemployment
rate increase from 2012 to 2013. The difference between 2012 and 2013 is 0.30%. The
unemployment rate has been remain unchange from 2013 to 2014 at 3.30%. In 2015,
Malaysia recorded about 3.20% unemployment rate. The unemployment rate has been
decrease from 2014 to 2015. The difference between the two years is 0.10%.
3.0 IMPACT AND EFFECT THE ISSUE TO THE ECONOMY

Unemployment is a very important issue for every country, especially developing country
with a tremendous population. High unemployment means that labour resources are not
being used efficiently. In consequence, full employment should be a major
macroeconomic goal of government. This essential issue often being included in the
government policy or agenda for parliament debate and discussion year after year. After
a long period of discussion and debate, it seems no ultimate solution has been found to
completely eliminate unemployment.

Theoretically, industrial economies are cyclically sensitive as such when it expands,

factors including employment, sales, prices and profits will rise. However, when it
contracts, downturns are inevitable and significant. When national economy is in
recession, many firms and companies are close down, it will cause unemployment rate
to increase.

The financial crisis has affected the Malaysian economy. The impact was evident with
the economic growth measured in real GDP began to slow down and registered the first
negative growth. The contraction in real GDP affected the labour market resulting in
slower employment growth, increased in the unemployment rate and also retrenchment.
Malaysia’s unemployment is relatively low and stable at around three percent which
means the population is experiencing close to full employment. The country reached its
lowest level of unemployment in 2014, with a rate of 2.85 percent.

There are many impact and effect of unemployment in an economy in Malaysia. With is
for the government, firms and of course to the unemployed people themselves. The
impact for the government is fewer tax revenues. This is because fewer people are
working, there will be fewer people earning enough income to pay tax. As a result, the
government will receive less tax revenue and this will have a large impact on the
government’s finances. Secondly is a lower economic growth (GDP). As fewer people
have jobs, firms won’t be able to produce as many goods and services. As a result, the
output of goods and services in the economy, GDP, will be lower. This also has an
impact on government taxation and spending and will negatively affect their finances.
Third is higher welfare costs. The unemployment in an economy means that fewer
people will be working and more people will be claiming benefits. More people claiming
benefits creates a drain on the government’s finances and means they have to spend
more on benefit payments and less on other areas of the economy so there is an
opportunity cost. The last impact for government is higher supply side costs. With
unemployment in an economy, more people won’t be working. These people need to be
taught skills in order for them to be employable by firms. The government will have to
spend more money on training the unemployed so they have the right skills to be
employed in a modern economy. This is also a drain on government finances and this
money could also be spent elsewhere.

The impact on the firms is lower wage costs. An unemployment in an economy

increases the supply of labour available for firms to employ. This creates a downward
pressure on wages as labour is less scarce and more people are willing to get a job at a
slightly lower wage. This will have a positive effect on firms as their variable costs will
fall. Secondly is larger pool of labour. An unemployment creates a large pool of labour
which gives firms more choice of who to employ. This allows them to employ workers
with higher skills and more experience.

Third is less demand for goods and services. An unemployment in an economy means
that a lot more people will have less disposable income. Therefore spending on most
goods and services will fall. As a result, firms will experience lower sales revenue and
will likely see a fall in profits. The next is increase in demand for inferior goods. There
are some goods in an economy that people buy more off when their incomes are lower –
these are known as inferior goods. When unemployment increases in an economy more
people start buying inferior goods because they have lower incomes. As a result, sellers
of inferior goods will see an increase in sales revenue and potentially an increase in
profits. Then higher training costs. As we have seen, many firms will benefit from lower
wage costs as a result of unemployment. However, many firms may also have to spend
more resources on training new employees because they have been out of work for so
long. Training new employee uses up a firm’s time and resources and as a result most
firms will see an increase in employment costs.
The last impact is on people. For example is lower standard of living. The people who
are unemployed will suffer a loss of income and will either have to survive on private
savings or on benefits. As a result, they will be able to buy fewer goods and services and
will see a fall in their standard of living. They also can loss of skills. When someone
becomes unemployed they will stop working and will start losing their skills and ability to
work. The longer someone stays unemployed, the less employable they will be to firms
because firms will need to spend money on retraining them. The last impact is they also
can loss of confidence and depression. People who are unemployed will also suffer a
loss of confidence in their ability. Many people who become unemployed will also suffer
stress related illnesses and depression.
4.0 ECONOMIC POLICIES IN MALAYSIA

Global economic reform has had a number of direct and indirect effects on Malaysia's
economy, and the unemployment scenario can be described as the most attractive effect
across Malaysia's labour market. In Malaysia, much of the manufacturing sector has
used high-tech equipment to manufacture more goods in a short period of time, not
relying on labour productivity. This causes job turnover in most major economic sectors
in Malaysia and worsens once the real exchange rate becomes unstable after the Asian
financial crisis of 1997.

The economic policies being practices in the country to solve the issues of
unemployment is benefit and tax reforms. For some economists, a policy that decreases
the real value of welfare benefits may increase the motivation for unemployed people to
take up work. It is unusual, however, that the root cause of anyone being out of work is
the possibility of receiving welfare handouts. Targeted steps to boost incentives for
people could include relating welfare benefits to involvement in work experience
programs or lower marginal tax rates for low-income people.

Other than that, reducing the geographical immobility of jobs. Many people have
the right qualifications to pursue new employment, but factors such as high home prices
and leases, family and social relations, and regional variations in the cost of living make
it difficult and even impossible to change places in order to get a new job. Most analysts
point to a persistently low level of new home-building as a major factor in preventing
labour mobility and the likelihood of finding new jobs.

Next, improve labour market flexibility. It is argued that higher structural

unemployment rates in Europe are due, in the first place, to restrictive labour markets
which deter firms from employing employees. For example, abolishing maximum
working weeks and making it easier to hire and fire workers can encourage more job
creation. However, increased labour market flexibility could lead to an increase in
temporary jobs and increased job insecurity.

Other that, stricter compensation criteria. Governments should play a more pro-
active role in helping unemployed people accept work or risk losing benefits. After a
certain period of time, the government may guarantee employment in the public sector
(e.g. street cleaning). This could reduce unemployment dramatically. This can mean,
however, that the government ends up employing thousands of people in unproductive
activities that are very costly. Even, if you make it difficult to receive benefits, you can
reduce the number of applicants, but not the International Labour Force Survey.

Besides that, education and training. The goal is to offer long-term unemployed
new skills that allow them to find employment in emerging industries, e.g. retraining
unemployed steel workers to have basic IT skills. Skills that help them find jobs in the
service sector. – However, given the availability of education and training programs,
unemployed people may be unable or unable to learn new skills. At best, it will take a
few years to reduce unemployment.

Other than that, reduce the strength of labour unions. If unions can negotiate
wages above the market level, they will cause real wage unemployment. In this situation,
a decrease in the power of trade unions (or a decrease in minimum wages) would help
to address this real unemployment rate.

Lastly, employment subsidies. Firms may be given tax breaks or incentives for
long-term unemployed employees. This helps to give them new faith and work
preparation. It will be very costly, however, and can enable businesses to simply
substitute current employees with long-term unemployment in order to benefit from tax
cuts.
5.0 ROLE FOR GOVERNMENT FOR UNEMPLOYMENT IN MALAYSIA

The role of government or other respective institution(s) in order to sustain the economy
because unemployment. Among the government's role in maintaining the economy is to
stabilize the tax on workers. Poor unemployment has forced workers to pay high taxes to
cover unemployment. The unemployed are not only involved in financial problems but
also the social problems of the country. The unemployed have to face challenges in
physical and mental health. Rising unemployment will cause the Gross domestic product
to decline. as a result of this the development of the country could not develop because
the government released the funds to accommodate the unemployed without getting a
return. Therefore, the government should provide more job opportunities for the
unemployed. Thus, the tax imposed on each worker is reduced. At the same time
helping to revitalize the country's income. In addition to helping to raise economic activity
for the government in the development of the country. The increase in unemployment in
the country has a negative impact on business and economic health. Then, the cost of
unemployment goes far beyond the accumulated sums handed out as unemployment
insurance benefits.
The economy has been declining throughout the country as a result of the
outbreak of the covid-19 epidemic. That is why the government plays a huge role in
sustaining every loss and the sudden increase in unemployment. Many business
enterprises have had to lay off workers because they were unable to accommodate
workers in processing, manufacturing and production. Manually dismissing workers is a
major step that businesses have to take to compensate for their losses. As a result, the
government has taken various productive measures in eradicating unemployment and
helping to boost the economy while at the same time sustaining the rising unemployment
rate. For example, rate of unemployment decrease 3.2% in January 2020. This is
because government success to sustain the economy.
 Further, increasing the sale of goods and increasing the demand for goods. In
this way it can help to increase the high demand rate among the community. High
demand for goods can lead to problems in unemployment. This means that investment
in each industry sector will increase and foreign investment in the country will increase.
The government has been able to cope with the losses caused by the rise in
unemployment. When we use wage inflation in economy, unemployment is high and
then the number of people looking for a job is available. Because of this matter help a
goverment supply in labor is greater then the demand. The government also needs to
increase the basic wage rate to reduce unemployment. In conclusion, unemployment
has a huge impact on the country's economy. The availability of jobs will help the
government to meet the state's expenditure on development through taxation and so on.
REFERENCES

https://www.jstor.org/stable/134443?seq=1
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https://www.geography.org.uk/teaching-resources/singapore-malaysia/The-role-of-
Governments-in-shaping-economic-development-in-Singapore-and-Malaysia
https://www.tutor2u.net/economics/reference/unemployment-policies-to-reduce-
unemployment
https://www.pmo.gov.my/vision-2020/some-key-public-sector-economic-policies/
https://dictionary.cambridge.org/dictionary/english/unemployment
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https://www.romeconomics.com/effects-of-unemployment